Business loans for sole traders with bad credit

Knowledge gaps can hinder growth.

No one knows that better than sole traders, who often rely on their skills and industry knowledge to maintain and grow their businesses.

With an overdraft having been used to support cash flow by 17% of UK businesses in the third quarter of 2023, it’s clear that financial knowledge can empower businesses and sole traders. But, almost 20% of British citizens are straddled with a poor credit score, which can hinder their ability to gain funding solutions. 

If you’re part of the 20%, or if you’d like to learn more about gaining business loans as a sole trader with bad credit, here’s everything you need to know on how to transform your credit score as a sole trader.

Improving your credit score as a sole trader

Self-employment can often result in sporadic payment schedules, however, unfortunately, if that irregularity spills over into your bill, debt, or mortgage payments, this can have a negative impact on your credit score. 

Here are some things you can do to improve your credit score as a sole trader:

• Create a budget: Calculate how much you’re likely to earn over the next 2 to 12 months, then break down your bills and costs and see if there are any month-to-month discrepancies. Address them now instead of when they arise to prevent any further missed payments.

• Take a break from credit: Business loans can be a growth enabler, but not if they have a negative impact on your creditworthiness. Requesting new loans often adds a hard search to your file and missing repayments can impact your score. So, for now, applicants might consider taking a break from business loans as you work towards building a solid financial foundation.

• Build an emergency fund: An emergency fund is a great way to create some security as a sole trader, it can provide a buffer for winter months and ensure you don’t miss any future loan or bill payments. More importantly, it can provide some peace of mind.

Business loans for sole traders with bad credit

Once you’ve gotten to a place where you feel financially comfortable, you might decide you’d like to leverage a business loan to help grow or maintain your business. Here are some options you could look into:

• Bad credit business loans: Bad credit business loans can be used for a range of business needs, including making payroll and purchasing inventory. In some cases, a bad credit business loan can actually improve your credit score if you make repayments consistently and clear the debt. However, they often come with higher interest rates and less favourable terms.

• Asset-based finance: If you work with equipment, you might like to look into asset-based finance. This form of finance is used to purchase or lease a business related product, whether physical or not, for example, you could use asset finance to purchase software or a lease a company vehicle. Since the asset serves as security for the loan, it can be easier to get approved for asset finance than some other forms of finance. Please note that asset finance typically requires an upfront deposit and there is less flexibility with early repayments.

• Invoice finance: With more than one in four UK businesses owed thousands of pounds in unpaid invoices, it’s no surprise many turn to invoice finance. Invoice finance lets you gain access to funds that are tied up in unpaid invoices. There are a few things worth noting about invoice finance – it’s only as good as the strength of your debtors, customers will have to change the account they pay into, and it can be admin heavy.

Apply for a sole trader business loan

At Funding Options by Tide, we work to match our users to a network of over 120 lenders. Click the link below to find out if you’re eligible for a sole trader business loan. You will only find out if you’re eligible after filling in the application. 

Apply for a sole trader business loan

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.